<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - JANUARY 16, 1996
PHOENIX NETWORK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-17909 84-0881154
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
550 CALIFORNIA STREET, 11TH FLOOR, SAN FRANCISCO, CA 94104
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 399-3300
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Item 7.(a) Financial statements of business acquired. See enclosed Exhibit 1
for the financial statements of Automated Communications, Inc.
Item 7.(b) Pro forma financial information.
The following unaudited pro forma condensed consolidated balance sheet
of the Company as of December 31, 1995, adjusts the historical consolidated
balance sheet as of December 31, 1995 to give effect to the acquisition of
Automated Communications, Inc., which was effective as of January 1, 1996. The
following unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1995, adjusts the historical consolidated
statement of operations for the year ended December 31, 1995 to give effect to
the August 1995 acquisition of the assets of Tele-Trend Communications LLC (see
Form 8-K dated November 9, 1995), and the January 1, 1996 acquisition of
Automated Communications, Inc. The pro forma condensed consolidated data
should be read in conjunction with the historical consolidated financial
statements of the Company, Tele-Trend Communications LLC (see Form 8-K dated
November 9, 1995), and Automated Communications, Inc. and are not necessarily
indicative of the results of operations that might have occurred if the
transactions had taken place at January 1, 1995, or of the Company's results of
operations for any future period.
<PAGE> 3
PHOENIX NETWORK, INC.
PRO FORMA - CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Phoenix Automated
Network, Communications, Pro Forma
Inc. (1) Inc. (2) Adjustments (3) Pro Forma
------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,004,511 $ 1,600 $ (4,000,000) $ 4,006,111
Accounts receivable, net
of allowance for doubtful
accounts 11,763,520 2,874,113 - 14,637,633
Deferred commissions 901,213 - - 901,213
Other current assets 304,920 55,127 - 360,047
------------- ------------- ------------- ------------
Total current assets 20,974,164 2,930,840 (4,000,000) 19,905,004
Furniture, equipment and data
processing systems, at cost
less accumulated depreciation 743,463 2,266,078 - 3,009,541
Deferred commissions 2,076,008 - - 2,076,008
Customer acquisitions costs,
less accumulated amortization 2,447,619 - 1,950,000 4,397,619
Goodwill, less accumulated
amortization 3,903,109 - 15,471,032 19,374,141
Other assets 223,520 642,890 - 866,410
------------- ------------- ------------- ------------
$ 30,367,883 $ 5,839,808 $ 13,421,032 $ 49,628,723
============= ============= ============= =============
</TABLE>
See Notes to Pro Forma Unaudited Condensed Financial Statements
<PAGE> 4
PHOENIX NETWORK, INC.
PRO FORMA - CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Phoenix Automated
Network, Communications, Pro Forma
Inc. (1) Inc. (2) Adjustments (3) Pro Forma
------------ ------------- --------------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Notes payable $ 41,468 $ 7,101,525 $ (2,685,944) $ 4,457,049
Accounts payable 10,500,807 3,503,143 - 14,003,950
Accrued liabilities 400,918 842,116 - 1,243,034
------------ ------------- ------------- ------------
Total current liabilities 10,943,193 11,446,784 (2,685,944) 19,704,033
Stockholders' equity
Preferred stock, $.001 par value;
authorized, 5,000,000 shares;
issued and outstanding,
2,737,389 shares 2,737 - - 2,737
Common stock, $.001 par value
authorized, 20,000,000 shares;
issued and outstanding,
14,459,658 shares (Pro Forma
17,259,658 shares) 14,460 - 2,800 17,260
Common stock, $1 par value,
100,000 shares outstanding - 100,000 (100,000) -
Additional paid-in capital 28,443,144 14,131,116 (3,633,916) 38,940,344
Treasury stock - 1,300 shares
at cost (2,522) - - (2,522)
Accumulated deficit from May 1,
1989 (9,033,129) (19,838,092) 19,838,092 (9,033,129)
----------- ------------ ------------- -----------
Total stockholders' equity
(deficit) 19,424,690 (5,606,976) 16,106,976 29,924,690
------------ ------------ ------------- ------------
$ 30,367,883 $ 5,839,808 $ 13,421,032 $ 49,628,723
============ ============ ============= ============
</TABLE>
See Notes to Pro Forma Unaudited Condensed Financial Statements
<PAGE> 5
PHOENIX NETWORK, INC.
PRO FORMA - CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Phoenix Automated Tele-Trend
Network, Communications, Communications Pro Forma
Inc.(4) Inc.(5) LLC(6) Adjustments(7) Pro Forma
----------- --------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $58,755,334 $24,004,326 $4,869,273 $ - $87,628,933
Cost of revenues 40,376,589 17,280,906 3,958,251 (115,545) 61,500,201
----------- ----------- ---------- ---------- -----------
Gross profit 18,378,745 6,723,420 911,022 115,545 26,128,732
Selling, general
and administrative
expenses 18,524,824 8,354,841 948,905 93,428 27,921,998
----------- ----------- ---------- --------- -----------
Income (loss) from
operations (146,079) (1,631,421) (37,883) 22,117 (1,793,266)
Abandonment of
assets (1,019,648) - - - (1,019,648)
Other income
(expense) (169,267) (53,893) (27,061) 354,074 103,853
----------- ----------- ---------- --------- -----------
Pre-tax income (1,334,994) (1,685,314) (64,944) 376,191 (2,709,061)
Income tax - - 3,217 (3,217) -
----------- ----------- ---------- --------- -----------
Net income (loss) (1,334,994) (1,685,314) (68,161) 379,408 (2,709,061)
Preferred stock
dividends (594,381) - - (581,184) (1,175,565)
----------- ----------- ---------- --------- -----------
Net income (loss)
attributable to
common shares $(1,929,375) $(1,685,314) $ (68,161) $(201,776) $(3,884,626)
=========== =========== ========== ========= ===========
Net loss per common
share $(0.15) $(0.25)
====== ======
Weighted average
number of shares
outstanding 12,613,992 2,800,000 15,413,992
========== ========= ==========
</TABLE>
See Notes to Pro Forma Unaudited Condensed Financial Statements
<PAGE> 6
PHOENIX NETWORK, INC.
NOTES TO PRO FORMA UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Represents the historical consolidated balance sheet of Phoenix Network,
Inc. as included in Form 10-K for the year ended December 31, 1995.
(2) Represents the historical balance sheet of Automated Communications,
Inc. as of December 31, 1995.
(3) The pro forma adjustments to the historical balance sheets reflect the
January 1996 acquisition of Automated Communications, Inc. (ACI) by
Phoenix Network, Inc. The adjustments reflect the estimated adjusted
purchase price of $15,814,056 comprised of $4,000,000 in cash to pay
amounts owed to the shareholder of ACI, 2,800,000 shares of Phoenix
Network, Inc. common stock valued at $10,500,000, and a note payable of
$1,314,056 to the sole shareholder of Automated Communications, Inc.
The adjustments reflect the allocation of that purchase price to the net
assets acquired. The customer base acquired is being amortized over a
four year life using the sum-of-the-years digits method. Goodwill is
being amortized over 20 years using the straight line method.
(4) Represents the historical consolidated statement of operations of
Phoenix Network, Inc. for the year ended December 31, 1995.
(5) Represents the historical statement of operations of Automated
Communications, Inc. for the year ended December 31, 1995.
(6) Represents the historical statement of operations of Tele-Trend
Communications, LLC for the seven months ended July 31, 1995.
(7) The adjustments to the historical statements of operations reflect the
following:
The amortization of the customer bases acquired and goodwill in both
acquisitions. The customer bases are being amortized over a four year
life using the sum-of-the-years digits method. Goodwill is being
amortized over 20 years using the straight line method. Pro forma
additional amortization is $1,821,893.
In connection with the acquisition of Automated Communications, Inc., a
$4,000,000, 6% note to the sole shareholder was retired and a 9% note
for $1,310,056 will be issued. Interest expense has been reduced by
$121,735.
As a result of the acquisition of Automated Communications, Inc., the
Company will be relocating its headquarters and most of its operations
to Automated Communications, Inc.'s facilities in Golden, Colorado. The
relocation will result in substantial reductions in rental and other
facilities costs. General and administrative costs have been reduced by
$480,000 to reflect the savings.
The Company has also reduced selling, general and administrative
expenses by $1,080,000 due to the elimination of certain positions as a
direct result of the acquisition of Automated Communications, Inc.
The Tele-Trend Communications LLC acquisition was financed by the
Company through the short-term issuance of 1,106,700 shares of 9%
Convertible Series F preferred shares at $10 per share. The Company also
used the net proceeds to retire all of its outstanding debt and the
balance was invested. Interest has been adjusted by $232,339 and
preferred dividends by $581,184.
The adjustments also reflect the additional carrier discounts in the
amount of $115,545 available under the Company's agreements which
reduces the cost of revenues acquired from Tele-Trend Communications
LLC. The Company also reduced selling, general and administrative
expenses by
<PAGE> 7
$168,465 due to the elimination of certain positions at Tele-Trend
Communications LLC as a direct result of the acquisition.
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Date: MARCH 29, 1996 PHOENIX NETWORK, INC.
-------------------------
/S/ JEFFREY L. BAILEY
--------------------------------
Jeffrey L. Bailey
Senior Vice President and
Chief Financial Officer
<PAGE> 9
EXHIBIT 1
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
AUTOMATED COMMUNICATIONS, INC.
December 31, 1994 and 1995
<PAGE> 10
[GRANT THORNTON LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholder and Board of Directors
Automated Communications, Inc.
We have audited the accompanying balance sheets of Automated
Communications, Inc. (a Colorado Corporation) as of December 31, 1994 and 1995,
and the related statements of operations, stockholder's deficit, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Automated
Communications, Inc. as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for the each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
- ----------------------------------
GRANT THORNTON LLP
San Francisco, California
March 6, 1996
<PAGE> 11
AUTOMATED COMMUNICATIONS, INC.
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,100 $ 1,600
Accounts receivable, net of allowance for doubtful accounts
of $100,000 in 1994 and $82,000 in 1995 3,385,453 2,874,113
Other current assets 347 55,127
----------- -----------
Total current assets 3,386,900 2,930,840
FURNITURE, EQUIPMENT AND DATA PROCESSING SYSTEMS -
at cost, less accumulated depreciation of $4,966,487
in 1994 and $5,575,311 in 1995 1,474,756 2,266,078
OTHER ASSETS
Deposits 623,828 642,890
----------- -----------
$ 5,485,484 $ 5,839,808
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Note payable - stockholder/related parties $ 6,176,197 $ 4,088,400
Other notes payable
Trade creditor 1,162,077 3,013,125
Finance company 212,008 -
Accounts payable 3,583,441 3,503,143
Accrued liabilities 1,058,214 842,116
---------- ----------
Total current liabilities 12,191,937 11,446,784
STOCKHOLDER'S DEFICIT
Class A common stock - $1 par value, authorized,
issued and outstanding 100,000 shares 100,000 100,000
Class B common stock - $1 par value, authorized,
100,000 shares, no shares issued and outstanding - -
Additional paid-in capital 11,346,325 14,131,116
Accumulated deficit (18,152,778) (19,838,092)
----------- -----------
(6,706,453) (5,606,976)
----------- -----------
$ 5,485,484 $ 5,839,808
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 12
AUTOMATED COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
Year ended December 31,
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 19,413,706 $ 25,691,300 $ 24,004,326
Cost of revenues 13,261,407 17,330,730 17,280,906
------------ ------------ ------------
Gross profit 6,152,299 8,360,570 6,723,420
Selling, general and administrative
expenses 8,249,766 9,005,574 7,897,567
Provision for doubtful accounts 357,287 602,979 457,274
------------ ------------ ------------
8,607,053 9,608,553 8,354,841
------------ ------------ ------------
Operating loss (2,454,754) (1,247,983) (1,631,421)
Other income (expense)
Interest income 172 106,188 85,516
Interest expense (643,589) (325,409) (309,474)
Other 280,762 183,594 170,065
------------ ------------ ------------
(362,655) (35,627) (53,893)
------------ ------------ ------------
Net loss $ (2,817,409) $ (1,283,610) $ (1,685,314)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 13
AUTOMATED COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDER'S DEFICIT
Three years ended December 31, 1995
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common paid-in Accumulated
Stock Stock capital deficit
--------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1993 $ 25,000 $ - $ 2,718,758 $ (14,051,759)
Net loss - - - (2,817,409)
Issuance of common stock
for cash 75,000 - 225,000 -
--------- ---------- ----------- -------------
Balance at December 31, 1993 100,000 - 2,943,758 (16,869,168)
Contribution of notes payable to
additional paid-in capital - - 8,402,567 -
Net loss - - - (1,283,610)
--------- ---------- ----------- -------------
Balance at December 31, 1994 100,000 - 11,346,325 (18,152,778)
Contribution of notes payable to
additional paid-in capital - - 2,784,791 -
Net loss - - - (1,685,314)
--------- ---------- ----------- -------------
Balance at December 31, 1995 $ 100,000 $ - $14,131,116 $ (19,838,092)
========= ========== =========== =============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 14
AUTOMATED COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ -----------
<S> <C> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Reconciliation of net loss to net cash
provided by (used in) operating activities:
Net loss $(2,817,409) $(1,283,610) $(1,685,314)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 644,011 566,551 644,689
Changes in assets and liabilities
Accounts receivable (983,009) (325,355) 511,340
Other current assets 165,623 9,175 (54,780)
Other assets (669,719) 45,891 (19,062)
Accounts payable and accrued
liabilities (381,101) (926,264) 303,472
Notes payable - trade creditor - net - 1,162,077 1,851,048
------------ ------------ -----------
Net cash provided by (used in)
operating activities (4,041,604) (751,535) 1,551,393
Cash flows from investing activities:
Purchases of furniture, equipment and
data processing systems - net (521,229) (446,977) (1,436,011)
Cash flows from financing activities:
Proceeds from issuance of common stock, 300,000 - -
Proceeds from note payable to stockholder (net) 4,541,816 1,713,816 97,127
Payments on other notes payable (278,983) (515,204) (212,009)
------------ ------------ -----------
Net cash provided by (used in) financing
activities 4,562,833 1,198,612 (114,882)
------------ ------------ -----------
NET INCREASE IN CASH - 100 500
Cash and cash equivalents at beginning of year 1,000 1,000 1,100
------------ ------------ -----------
Cash and cash equivalents at end of year $ 1,000 $ 1,100 $ 1,600
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 15
AUTOMATED COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS (continued)
Year ended December 31,
<TABLE>
<CAPTION>
1993 1994 1995
----------- ---------- ----------
<S> <C> <C> <C>
Additional cash flow information
Interest paid $ 87,021 $ 56,785 $ 41,735
Schedule of noncash investing and financing
activity
Contribution of notes payable and accrued
interest to additional paid-in capital - 8,402,567 2,784,791
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 16
AUTOMATED COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994 and 1995
NOTE A - DESCRIPTION OF COMPANY AND SUMMARY OF ACCOUNTING POLICIES
Automated Communications, Inc. ("ACI" or the "Company") is a facilities based
seller of long distance telecommunication services designed primarily for
small to medium sized commercial accounts. The Company provides its
customers with long distance services utilizing the networks of other
facilities-based carriers, such as Wiltel, Inc., U.S. West and others, who
handle the actual call transmission services. A significant portion of ACI's
customers are located in Colorado and Minnesota. The carriers bill ACI at
contractual rates for the combined usage of ACI's customers utilizing their
network. ACI then bills its customers individually at rates established by
ACI.
The following is a summary of the Company's significant accounting policies
applied in the preparation of the accompanying financial statements.
o Revenue Recognition
Revenue is recognized in the month in which the Company's customers
complete the telephone call.
o Cash and Cash Equivalents
The Company considers demand deposits and certificates of deposit
purchased with a maturity of three months or less as cash and cash
equivalents.
o Furniture, Equipment and Data Processing Systems
Depreciation of furniture, equipment and data processing systems is
provided in amounts sufficient to relate the cost of the depreciable
assets to operations over their estimated service lives, utilizing the
straight-line method. Leasehold improvements are amortized over the life
of the lease. The following summarizes useful lives for depreciation and
amortization:
<TABLE>
<CAPTION>
<S> <C>
Data processing systems 5 years
Furniture and fixtures 7 years
Switching equipment 5 years
Other equipment 5 years
Leasehold improvements 7 - 10 years
</TABLE>
o Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles involves the use of management's
estimates. These estimates are based upon management's best judgments,
after considering past and current events and assumptions about future
events. Actual results could differ from those estimates.
o Income Taxes
The Company is organized as an S-Corporation for federal income tax
purposes. S-Corporation earnings (losses) at the corporate level pass
through to the Company's stockholders individually.
<PAGE> 17
AUTOMATED COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1994 and 1995
NOTE B - FURNITURE, EQUIPMENT AND DATA PROCESSING SYSTEMS
Furniture, equipment and data processing systems consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1994 1995
---------- ----------
<S> <C> <C>
Switching equipment $2,726,645 $3,826,570
Data processing systems 1,993,360 2,324,380
Furniture and fixtures 367,610 372,584
Other equipment 1,101,426 1,101,426
Leasehold improvements 252,202 216,429
---------- ----------
6,441,243 7,841,389
Less accumulated depreciation
and amortization 4,966,487 5,575,311
---------- ----------
$1,474,756 $2,266,078
========== ==========
</TABLE>
NOTE C - NOTE PAYABLE TO STOCKHOLDER/RELATED PARTIES AND RELATED PARTY
TRANSACTIONS
On January 1, 1993, the Company issued notes payable to a stockholder and two
related parties. The notes and any subsequent advances under the notes
carried an interest rate of 6% and are renewable annually. In January, 1994,
one of the related parties forgave the outstanding note balance due him of
$6,074,757 plus accrued interest of $2,327,810. This forgiveness has been
reflected as a contribution to capital in 1994. In 1995, unpaid principal
and interest, totaling $2,784,791, due under the note payable to the
stockholder was also contributed to capital. At December 31, 1995,
$4,000,000 remains payable to the stockholder. This note is due January 1,
1996 and was paid in full on January 16, 1996, as part of the sale of the
Company's stock (note I). The balance at December 31, 1994 and 1995 of the
note payable to the second related party was $88,400. The note is due on
demand and bears interest at 6%.
During 1995, the Company purchased switching equipment from a related party
for approximately $500,000. The payment was made by reducing receivables
from the seller by $300,000, and agreeing to provide $200,000 in free service
in the future. At December 31, 1995, approximately $190,000 is included in
liabilities for service remaining to be provided.
<PAGE> 18
AUTOMATED COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1994 and 1995
NOTE D - OTHER NOTES PAYABLE
Other notes payable are comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
------------- -------------
<S> <C> <C>
Unsecured note payable to trade creditor; due in monthly
installments of $139,178, including interest at 12% from
March 1995 to November 1995 $ 1,162,077 $ -
============= =============
Unsecured note payable to trade creditor, due in one lump
sum payment, plus interest at 18% on March 31, 1996 $ - $ 3,013,125
============= =============
Note payable to a finance company, due in monthly
installments of $11,911 plus interest at 10.98% through November
1995; collateralized by accounts receivable and equipment $ 212,008 $ -
============= =============
</TABLE>
NOTE E - LEASES
The Company has operating leases for office space which expire on various
dates through 2000, and which require that the Company pay certain
maintenance, insurance and other operating expenses. Rent expense for the
years ended December 31, 1993, 1994 and 1995, was $582,020, $603,448 and
$789,751, respectively.
Future minimum lease payments for years ending December 31, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 959,742
1997 891,287
1998 226,467
1999 226,467
2000 107,694
------------
Total $ 2,411,657
============
</TABLE>
<PAGE> 19
AUTOMATED COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
December 31, 1994 and 1995
NOTE F - EMPLOYEE BENEFIT PLANS
On May 3, 1994, the Company established a 401(k) tax savings plan for all
employees. Employer and participant contributions to the plan become fully
vested and nonforfeitable. The plan is a defined contribution plan covering
all of its employees. Under this plan, employees with a minimum of one year
of qualified service can elect to participate by contributing a minimum of 2
percent of their gross earnings up to a maximum of 15 percent.
For those eligible plan participants, the Company may elect to make a
matching contribution equal to a percentage of the participants elective
contributions not to exceed 6% of compensation. There were no Company
contributions to the 401(k) plan for the years ending December 31, 1994 and
1995.
NOTE G - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate
that value.
Notes payable - Carrying amount approximates fair value because of the
short maturity of these instruments.
NOTE H - CONTINGENCIES
The Company and its stockholder are involved in litigation relating to
alleged breach of certain noncompete agreements by the Company and its
stockholder, which arose from ACI's sale of its New Mexico customer base to
another long distance carrier in 1992. The Company has filed for summary
judgment asking that all claims be dismissed. The District Court has yet to
rule on the summary judgment. Claims against the Company total approximately
$2.5 million. The Company's legal counsel is not able to determine the
ultimate liability, if any, of the Company related to this litigation. No
provision has been made in the Company's financial statements related to this
uncertainty.
NOTE I - SUBSEQUENT EVENT
In January 1996, the Company's stockholder sold all outstanding shares of the
Company to Phoenix Network Acquisition Corp. (PAC), a wholly-owned
subsidiary of Phoenix Network, Inc. (Phoenix). As consideration for the
transfer of ACI's stock to PAC, the stockholder received stock in Phoenix,
payment of a $4 million promissory note from ACI, which was assumed by PAC
and a temporary promissory note for $2.4 million, guaranteed by Phoenix and
adjustable on April 1, 1996 to a balance determined based on certain formulas
outlined in the purchase agreement.
